Bond Yields Fall on Rising Appetite for Equities

Yields on FGN bonds dropped last week as investors continued to take advantage of the stock market which has been upbeat since this year.
Most equities listed on the Nigerian Stock Exchange (NSE) have recorded significant capital appreciation since this year.

In fact, the NSE All Share Index has increased by 17 per cent in the 36 trading sessions observed this year from 28,501.21 basis points, to 33,342.02 basis points on Friday. Also, the NSE market capitalisation has climbed by N.559 trillion this year, to N10.668 trillion as at Friday, compared to the N9.109 trillion it stood at the beginning of the year.
But data obtained from the Financial Market Dealers Association (FMDA) showed that this contributed to the slide recorded by bond yields.

For instance, while yields on the 8th FGN Bond 2014 Series one, fell to 10.83 per cent on Friday, from 10.94 per cent the preceding Friday, yield on the 7th FGN Bond 2015 Series two, also slipped to 10.84 per cent on Friday from 11.02 per cent the preceding Friday.

In the same vein, while yield on the 9th FGN Bond 2019 Series three also dipped to 10.74 per cent on Friday, from 10.88 per cent the preceding Friday, yields on the 9th FGN Bond 2022 Series one also dropped to 10.74 per cent on Friday, from 10.92 per cent the preceding Friday. Yields on the 7th FGN Bond 2030 Series three also fell to 10.80 per cent on Friday, from 12.04 per cent.

However, the direction of bond yields this week would be largely influenced by the inflation figures for January to be announced by the National Bureau of Statistics (NBS) during the week. Inflation stood at 12 per cent in December 2012. Analysts at FSDH Merchant Bank Limited at the weekend predicted that year-on-year in the month of January 2013 should fall to single digit of 9.1 per cent due to base effect.
NIBOR Rate

The illiquidity in the interbank market persisted last week as the Nigerian Interbank Offered Rates (NIBOR) jumped to an average of 15.23 per cent on Friday, compared to the 14.21 per cent it was the preceding Friday.

As a result of this, the overnight tenor climbed to 14.33 per cent on Friday, from 13.21 per cent the preceding Friday. Also, just as the 7-day tenor advanced to 14.58 per cent from 13.54 per cent the preceding Friday, the 30-day tenor climbed to 14.87 per cent on Friday, from 13.87 per cent the preceding Friday. The 60-day tenor also climbed to 15.25 per cent, from 14.21 per cent.

Meanwhile, the liquidity position of the market is expected to improve this week as part of the funds from the Federation Account Allocation Committee (FAAC) shard among the three tiers of government would hit the system. FAAC had shared a total of N575.46 billion to the three tiers of government as allocation for the month of January 2013.

Naira Performance
The naira fell slightly by 13 kobo against the dollar at the interbank to close at N157.40 to a dollar, compared to the N157.27 to a dollar it attained the preceding Friday. At the Wholesale Dutch Auction System (WDAS), the CBN offered a total of $330 million to dealers last week, higher than the $270 million it offered. But the value of the naira remained unchanged at N155.74 to a dollar.
Development Finance Institution

As part of efforts to stimulate the growth of the Nigerian economy through long-term funding, the Federal Government last week said it intends to establish a development finance institution that will enable investors borrow fund for 10 to 15 years to invest in the economy.
The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, said that the focus of the government was to ensure that more investments are made in the economy to create jobs and reduce unemployment rate.

Okonjo-Iweala pointed out that although there were a lot of investment opportunities in the economy, the much-needed long term finance for such investments was lacking, hence government would “create a development finance institution that will be a wholesaler that will be able to provide long term finances and have private sector multilateral participation.”

HoldCo-Subsidiaries Relationship

The Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, last week also disclosed that the apex bank will soon introduce measures to regulate the lending between financial institutions that have adopted the Holding Company (HoldCo) and their subsidiaries.

Sanusi said the policy was initiated in order to prevent the build-up of risk in the system.
Sanusi explained: “We want to place a control so that if you place money with the subsidiary of your HoldCo and it is not secured, we take that from your capital. If you lend money to the parent, we take it as return on equity.

“So the idea that people can set up a bank, put in capital and then turn back and borrow it is no longer possible. So we are making it difficult for people to take deposit and trade with it.”

Monetary Policy
The CBN governor also said that apex bank would not bow to pressure from members of the public to relax monetary policy.

In fact, Sanusi insisted that the apex bank was not in a hurry to loosen its stance on monetary policy, citing the need to ensure economic stability.
Sanusi explained: “Since the last three MPC meetings, there has been this orchestrated attempt in the run up to the MPC to intimidate and harass us into lowering interest rate.

“Why we are no longer dealing with banking system that was on the verge of collapse, external reserves that was crashing, with multiple exchange rates, with inflation at 15 per cent, it is nice for people to be complaining whether interest rate should be 50 basis points or 100 basis points lower.”

Cashless System
Transactions recorded by the Nigerian Inter Bank Settlement System (NIBSS) under its NIBSS Instant Payment (NIP) and Nigerian Electronic Fund Transfer (NEFT) have increased significantly to about N40 billion daily.
NIP and NEFT are products used by corporate organisations to make payment for huge transactions electronically, in line with the cash less policy.

Head, Shared Services, CBN, Mr Chidi Umeano explained that the data were gathered from the NIBSS. He also revealed that as a result of the cashless policy, cheques, Point of Sale (PoS) and Automated Teller Machines (ATMs) usage have continued to record huge volume and value.
He added: “Banks have continued to roll out more innovative electronic payment platforms to meet customers’ expectations. The cash less policy has been very successful in Lagos, considering when we started and how far we have gone in terms of PoS deployment.”

Bank Charges
The Bankers' Committee last week said it is currently working on a new guideline on bank charges which will lead to a significant reduction in the amount paid by customers from this year.

Group Managing Director/Chief Executive Officer, Access Bank Plc, Mr. Aigboje Aig-Imoukhuede, alongside other banks chief executives, said although bank charges had been on the decline in recent times, the new guideline which is yet to be ratified, would see charges decline further.

The committee also disclosed plans to sign a memorandum of understanding (MoU) with the Borno State government for the implementation of the pilot phase of National Financial Inclusion Strategy in the state.

Non-oil Export Earnings
The total non-oil export earnings by Nigerian exporters increased by 72.9 per cent to $987.10 million at the end of the fourth quarter of last year, the CBN revealed last week.

This, according to the bank, also reflected an increase of 65.6 per cent above the level in the corresponding quarter of 2011. The CBN’s economic report for the fourth quarter of 2012 however attributed the development largely to the significant rise in the export of food, agricultural products and industrial sector during the quarter under review.

Eurobond Yields
Nigeria’s dollar-denominated borrowing costs rose last week to the highest in more than two months on speculation that a United States’ economic recovery will drive up the global borrowing benchmark rate. According to Bloomberg, yields on the Eurobond expected to mature 2021 climbed three basis points to 4.21 per cent in London yesterday, the highest since December 4, 2012. London-based Emerging Markets Strategist at Standard Bank Group, Samir Gadio, was quoted to have said: “Should the US economy recover, US Treasury yields will possibly back up, negatively affecting the 21s.”

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Bond Yields Fall on Rising Appetite for Equities

Yields on FGN bonds dropped last week as investors continued to take advantage of the stock market which has been upbeat since this year.
Most equities listed on the Nigerian Stock Exchange (NSE) have recorded significant capital appreciation since this year.

In fact, the NSE All Share Index has increased by 17 per cent in the 36 trading sessions observed this year from 28,501.21 basis points, to 33,342.02 basis points on Friday. Also, the NSE market capitalisation has climbed by N.559 trillion this year, to N10.668 trillion as at Friday, compared to the N9.109 trillion it stood at the beginning of the year.
But data obtained from the Financial Market Dealers Association (FMDA) showed that this contributed to the slide recorded by bond yields.

For instance, while yields on the 8th FGN Bond 2014 Series one, fell to 10.83 per cent on Friday, from 10.94 per cent the preceding Friday, yield on the 7th FGN Bond 2015 Series two, also slipped to 10.84 per cent on Friday from 11.02 per cent the preceding Friday.

In the same vein, while yield on the 9th FGN Bond 2019 Series three also dipped to 10.74 per cent on Friday, from 10.88 per cent the preceding Friday, yields on the 9th FGN Bond 2022 Series one also dropped to 10.74 per cent on Friday, from 10.92 per cent the preceding Friday. Yields on the 7th FGN Bond 2030 Series three also fell to 10.80 per cent on Friday, from 12.04 per cent.

However, the direction of bond yields this week would be largely influenced by the inflation figures for January to be announced by the National Bureau of Statistics (NBS) during the week. Inflation stood at 12 per cent in December 2012. Analysts at FSDH Merchant Bank Limited at the weekend predicted that year-on-year in the month of January 2013 should fall to single digit of 9.1 per cent due to base effect.
NIBOR Rate

The illiquidity in the interbank market persisted last week as the Nigerian Interbank Offered Rates (NIBOR) jumped to an average of 15.23 per cent on Friday, compared to the 14.21 per cent it was the preceding Friday.

As a result of this, the overnight tenor climbed to 14.33 per cent on Friday, from 13.21 per cent the preceding Friday. Also, just as the 7-day tenor advanced to 14.58 per cent from 13.54 per cent the preceding Friday, the 30-day tenor climbed to 14.87 per cent on Friday, from 13.87 per cent the preceding Friday. The 60-day tenor also climbed to 15.25 per cent, from 14.21 per cent.

Meanwhile, the liquidity position of the market is expected to improve this week as part of the funds from the Federation Account Allocation Committee (FAAC) shard among the three tiers of government would hit the system. FAAC had shared a total of N575.46 billion to the three tiers of government as allocation for the month of January 2013.

Naira Performance
The naira fell slightly by 13 kobo against the dollar at the interbank to close at N157.40 to a dollar, compared to the N157.27 to a dollar it attained the preceding Friday. At the Wholesale Dutch Auction System (WDAS), the CBN offered a total of $330 million to dealers last week, higher than the $270 million it offered. But the value of the naira remained unchanged at N155.74 to a dollar.
Development Finance Institution

As part of efforts to stimulate the growth of the Nigerian economy through long-term funding, the Federal Government last week said it intends to establish a development finance institution that will enable investors borrow fund for 10 to 15 years to invest in the economy.
The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, said that the focus of the government was to ensure that more investments are made in the economy to create jobs and reduce unemployment rate.

Okonjo-Iweala pointed out that although there were a lot of investment opportunities in the economy, the much-needed long term finance for such investments was lacking, hence government would “create a development finance institution that will be a wholesaler that will be able to provide long term finances and have private sector multilateral participation.”

HoldCo-Subsidiaries Relationship

The Governor of the Central Bank of Nigeria (CBN), Mallam Sanusi Lamido Sanusi, last week also disclosed that the apex bank will soon introduce measures to regulate the lending between financial institutions that have adopted the Holding Company (HoldCo) and their subsidiaries.

Sanusi said the policy was initiated in order to prevent the build-up of risk in the system.
Sanusi explained: “We want to place a control so that if you place money with the subsidiary of your HoldCo and it is not secured, we take that from your capital. If you lend money to the parent, we take it as return on equity.

“So the idea that people can set up a bank, put in capital and then turn back and borrow it is no longer possible. So we are making it difficult for people to take deposit and trade with it.”

Monetary Policy
The CBN governor also said that apex bank would not bow to pressure from members of the public to relax monetary policy.

In fact, Sanusi insisted that the apex bank was not in a hurry to loosen its stance on monetary policy, citing the need to ensure economic stability.
Sanusi explained: “Since the last three MPC meetings, there has been this orchestrated attempt in the run up to the MPC to intimidate and harass us into lowering interest rate.

“Why we are no longer dealing with banking system that was on the verge of collapse, external reserves that was crashing, with multiple exchange rates, with inflation at 15 per cent, it is nice for people to be complaining whether interest rate should be 50 basis points or 100 basis points lower.”

Cashless System
Transactions recorded by the Nigerian Inter Bank Settlement System (NIBSS) under its NIBSS Instant Payment (NIP) and Nigerian Electronic Fund Transfer (NEFT) have increased significantly to about N40 billion daily.
NIP and NEFT are products used by corporate organisations to make payment for huge transactions electronically, in line with the cash less policy.

Head, Shared Services, CBN, Mr Chidi Umeano explained that the data were gathered from the NIBSS. He also revealed that as a result of the cashless policy, cheques, Point of Sale (PoS) and Automated Teller Machines (ATMs) usage have continued to record huge volume and value.
He added: “Banks have continued to roll out more innovative electronic payment platforms to meet customers’ expectations. The cash less policy has been very successful in Lagos, considering when we started and how far we have gone in terms of PoS deployment.”

Bank Charges
The Bankers' Committee last week said it is currently working on a new guideline on bank charges which will lead to a significant reduction in the amount paid by customers from this year.

Group Managing Director/Chief Executive Officer, Access Bank Plc, Mr. Aigboje Aig-Imoukhuede, alongside other banks chief executives, said although bank charges had been on the decline in recent times, the new guideline which is yet to be ratified, would see charges decline further.

The committee also disclosed plans to sign a memorandum of understanding (MoU) with the Borno State government for the implementation of the pilot phase of National Financial Inclusion Strategy in the state.

Non-oil Export Earnings
The total non-oil export earnings by Nigerian exporters increased by 72.9 per cent to $987.10 million at the end of the fourth quarter of last year, the CBN revealed last week.

This, according to the bank, also reflected an increase of 65.6 per cent above the level in the corresponding quarter of 2011. The CBN’s economic report for the fourth quarter of 2012 however attributed the development largely to the significant rise in the export of food, agricultural products and industrial sector during the quarter under review.

Eurobond Yields
Nigeria’s dollar-denominated borrowing costs rose last week to the highest in more than two months on speculation that a United States’ economic recovery will drive up the global borrowing benchmark rate. According to Bloomberg, yields on the Eurobond expected to mature 2021 climbed three basis points to 4.21 per cent in London yesterday, the highest since December 4, 2012. London-based Emerging Markets Strategist at Standard Bank Group, Samir Gadio, was quoted to have said: “Should the US economy recover, US Treasury yields will possibly back up, negatively affecting the 21s.”

Please leave your comment below. Your name will appear next to your comment. We'll also keep you updated by email whenever someone else comments on this page. Your comment will appear on this page once it has been approved by a moderator.